AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking and notice of public hearing.

SUMMARY:

This document contains proposed amendments to the regulations relating
to a taxpayer’s right to a hearing before or after levy under section
6330 of the Internal Revenue Code of 1986. The proposed regulations make
certain clarifying changes in the way collection due process (CDP) hearings
are held and specify the period during which a taxpayer may request an equivalent
hearing. The proposed regulations affect taxpayers against whose property
or rights to property the Internal Revenue Service (IRS) intends to levy on
or after January 19, 1999. This document also contains a notice of public
hearing on these proposed regulations.

DATES:

Written and electronic comments must be received by December 15, 2005.
Outlines of topics to be discussed at the public hearing scheduled for 10
a.m. on January 19, 2006, must be received by December 29, 2005.

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Regulations on Procedure
and Administration (26 CFR part 301) relating to the provision of notice under
section 6330 of the Internal Revenue Code to taxpayers of a right to a CDP
hearing (CDP Notice) before levy. Final regulations (T.D. 8980, 2002-1 C.B.
477) were published on January 18, 2002 in the Federal
Register (67 FR 2549). The final regulations implemented certain
changes made by section 3401 of the Internal Revenue Service Restructuring
and Reform Act of 1998 (Public Law 105-206, 112 Stat. 685) (RRA 1998), including
the addition of section 6330 to the Internal Revenue Code. The final regulations
affected taxpayers against whose property or rights to property the IRS intends
to levy.

Section 3401 of RRA 1998 also added section 6320 to the Internal Revenue
Code. That statute provides for notice to taxpayers of a right to a hearing
after the filing of a notice of Federal tax lien (NFTL). A number of the provisions
in section 6330 concerning the conduct and judicial review of a CDP hearing
are incorporated by reference in section 6320. On January 18, 2002, final
regulations (T.D. 8979, 2002-1 C.B. 466) under section 6320 were published
in the Federal Register (67 FR 2558) along
with the final regulations under section 6330.

Explanation of Provisions

A taxpayer is entitled to one CDP hearing with respect to the tax and
tax period covered by a CDP Notice concerning a levy or a CDP Notice concerning
the filing of a NFTL. The IRS Office of Appeals (Appeals) has conducted over
92,000 CDP hearings and more than 30,000 equivalent hearings since sections
6320 and 6330 became effective for collection actions initiated on and after
January 19, 1999.

In general, the experience of the past six years with CDP hearings has
demonstrated that there is a need for changes to allow Appeals to effectively
and fairly handle the cases of taxpayers who raise issues of substance. Appeals
has instituted many improvements in its processing of CDP cases and has conducted
extensive training in an effort to provide careful, but timely, review of
CDP cases, which currently are filed at a rate of approximately 2,450 per
month. The proposed regulations, if adopted as final regulations, will increase
efficiency without compromising the quality and fairness of review.

In many CDP cases, significant time is spent merely identifying the
issues. Although the Form 12153 used to request a CDP hearing requires a
taxpayer to state a reason or reasons for disagreeing with the proposed levy,
many taxpayers either do not supply that information, or raise new issues
during the CDP hearing process not identified on the hearing request. Delays
result while taxpayers provide new supporting documentation and Appeals personnel
reconsider prior conclusions in light of the new information. Cases of other
taxpayers pending in Appeals are delayed because other work must be constantly
rescheduled.

Cases are also delayed when taxpayers propose collection alternatives
for which they are not eligible. The IRS does not consider offers in compromise
or installment agreements from taxpayers who have failed to file required
returns as of the date the offer or the proposed installment agreement is
submitted. See Publication 594, “What You Should Know About
the IRS Collection Process (Rev. 2-2004).” Similarly, the
IRS will not consider an offer in compromise from an in-business taxpayer
unless the taxpayer has timely filed all returns and timely made all Federal
tax deposits for two consecutive quarters. See Form 656, “Offer
in Compromise (Rev. 7-2004).” The resources of Appeals are
ineffectively utilized arranging and conducting face-to-face conferences requested
by non-compliant taxpayers whose only complaint is the rejection of an offer
to compromise or installment agreement for which they are not eligible.

Frivolous cases also cause unnecessary delays. During fiscal year 2004,
5.4 percent of the 32,226 CDP and equivalent-hearing cases Appeals handled
involved taxpayers who were non-filers or raised only frivolous issues. Cases
raising frivolous issues, in particular, consume a disproportionately large
amount of time, because Appeals personnel must often read lengthy, frivolous
submissions in search of any substantive issue buried within. Delays also
result when taxpayers use face-to-face conferences as a venue for frivolous
oration and harassment of Appeals personnel.

The proposed regulations attempt to address these and other problems
that have become apparent during the first six years of CDP practice. The
proposed changes are aimed at creating a more focused procedure that will
allow Appeals to continue to provide careful review of proposed levies as
the volume of cases increases.

A taxpayer must request a CDP hearing in writing. The current regulations
require that a request for a CDP hearing include the taxpayer’s name,
address, and daytime telephone number, and that the request be dated and signed
by either the taxpayer or the taxpayer’s authorized representative.
Section 301.6330-1(c)(2), Q&A-C1. A Form 12153, “Request
for a Collection Due Process Hearing,” is included with the
CDP Notice sent to the taxpayer pursuant to section 6330. The Form 12153
requests (1) the taxpayer’s name, address, daytime telephone number,
and taxpayer identification number (SSN or EIN), (2) the type of tax involved,
(3) the tax period at issue, (4) a statement that the taxpayer requests a
hearing with Appeals concerning the proposed levy, and (5) the reason or reasons
why the taxpayer disagrees with the proposed levy. Although taxpayers are
encouraged to use a Form 12153 in requesting a CDP hearing, the current regulations
do not require the use of Form 12153.

Section 301.6330-1(c)(2), A-C1, of the proposed regulations requires
taxpayers to state their reasons for disagreement with the proposed levy whether
or not a Form 12153 is used to request a CDP hearing. In addition, a taxpayer
who fails to sign a timely CDP hearing request because the request is made
by a spouse or other unauthorized representative must affirm in writing that
the request was originally submitted on the taxpayer’s behalf. Failure
to provide the written affirmation within a reasonable time after a request
from Appeals will result in the denial of a CDP hearing for that taxpayer.

A CDP hearing is to be conducted by an Appeals officer or employee who
has had no “prior involvement” with respect to the tax for the
tax periods to be covered by the hearing, unless the taxpayer waives this
requirement. Section 301.6330-1(d)(2), A-D4 of the current regulations provides
that “prior involvement” by an Appeals officer or employee includes
participation or involvement in an Appeals hearing that the taxpayer may have
had with respect to the tax and tax period shown on the CDP Notice, other
than a CDP hearing held under either section 6320 or section 6330. It is
important that “prior involvement” be construed in a manner that
reasonably protects against predisposition but at the same time does not disqualify
too broad a range of Appeals personnel. A broad standard of “prior
involvement” would lead to uncertain application, could result in the
disqualification of an entire Appeals office, many of which have small staffs,
and could make it difficult to conduct the CDP hearing. Section 301.6330-1(d)(2),
A-D4 of the proposed regulations provides that prior involvement exists only
when the taxpayer, the tax liability and the tax period shown on the CDP Notice
also were at issue in the prior non-CDP hearing or proceeding, and the Appeals
officer or employee actually participated in the prior hearing or proceeding.
Examples are provided in §301.6330-1(d)(3) of the proposed regulations.

Section 301.6330-1(d)(2), A-D7, of the proposed regulations clarifies
that a face-to-face conference is merely one aspect of a CDP hearing under
section 6330 and is not by itself the entire CDP hearing.

A-D7 of the proposed regulations also provides that, in all cases, the
Appeals officer or employee will review the taxpayer’s request for a
CDP hearing, the case file, other written communications from the taxpayer,
and any notes of oral communications with the taxpayer or the taxpayer’s
representative. If no face-to-face or telephonic conference is held, review
of those documents will constitute the CDP hearing for purposes of section
6330(b).

A-D7 of the proposed regulations further clarifies that when a business
taxpayer is offered an opportunity for a face-to-face conference it will be
held at the Appeals office closest to the taxpayer’s principal place
of business. The current regulations have been misinterpreted by some taxpayers
as requiring the IRS to hold a face-to-face conference at the taxpayer’s
principal place of business.

Q&A-D8 of the proposed regulations is new. It describes specific
circumstances in which Appeals will not hold a face-to-face conference with
the taxpayer or the taxpayer’s representative because a conference will
serve no useful purpose. The experience of Appeals is that although most taxpayers
request face-to-face conferences, they are sometimes difficult to schedule
on a date and at a time that is convenient for the taxpayer. In some of these
cases, taxpayers or their representatives have used the scheduling of a face-to-face
conference as a tactic to delay the IRS’s collection efforts. In other
cases, taxpayers have requested a face-to-face conference merely to raise
frivolous arguments concerning the Federal tax system or to request collection
alternatives for which they do not qualify. Q&A-D8 of the proposed regulations
provides that a face-to-face conference need not be offered if the taxpayer
or the taxpayer’s representative raises only frivolous arguments concerning
the Federal tax system. See the IRS Internet site, www.irs.gov/pub/irs-utl/friv_tax.pdf,
for examples of frivolous arguments. A face-to-face conference also will
not be granted if the taxpayer proposes collection alternatives that would
not be available to other taxpayers in similar circumstances. A face-to-face
conference need not be granted if the taxpayer does not provide in the written
request for a CDP hearing, as perfected, the required information set forth
in A-C1(ii)(E) of paragraph (c)(2) of the proposed regulations.

In addition, a face-to-face conference will not be held at the location
closest to the taxpayer’s residence or principal place of business if
all Appeals officers or employees at that location are considered to have
prior involvement as provided in A-D4. In this case, the taxpayer will be
offered a hearing by telephone or correspondence, or some combination thereof.
The taxpayer may be able to obtain a face-to-face conference at the Appeals
office closest to the taxpayer’s residence or principal place of business
under these circumstances if the taxpayer waives the requirement of section
6330(b)(3) concerning impartiality of the Appeals officer or employee. Appeals
will offer the taxpayer a face-to-face conference at another Appeals office
if in the exercise of its discretion Appeals would have offered the taxpayer
a face-to-face conference at the original location.

With the foregoing exceptions, it is anticipated that a face-to-face
conference will ordinarily be offered with respect to any relevant issues
or collection alternatives for which the taxpayer qualifies.

Sections 301.6330-1(e)(1) and 301.6330-1(e)(3), A-E2 and A-E7 have been
changed to more closely follow the language of section 6330(c)(2)(B). These
changes are necessary because these regulations have been misinterpreted as
defining the underlying tax liability that may be considered at the CDP hearing
under section 6330(c)(2)(B) to be the tax liability listed on the CDP Notice.
The existing regulations, which refer to tax liability on the CDP Notice,
were intended merely to make clear that taxpayers may only challenge taxes
or tax periods listed on the CDP Notice, not to supply a substantive definition
of underlying tax liability. Section 301.6330-1(e)(3), A-E6 has been amended
to clarify that taxpayers who receive CDP hearings can only qualify for collection
alternatives available generally to taxpayers in similar circumstances.

The experience of the past six years has revealed that many taxpayers
raise an issue with Appeals but fail to furnish any documentation or evidence
with respect to the issue despite being given a reasonable period to do so.
For example, a taxpayer may request an installment agreement, but when an
Appeals officer or employee requests financial data necessary to determine
eligibility for the installment agreement, the taxpayer may not comply with
the request. Or a taxpayer may dispute liability for a tax period by claiming
entitlement to deductions, but provide no substantiation for the deductions
in response to requests from Appeals. Current §301.6330-1(f)(2), A-F5
provides that a taxpayer may not seek judicial review of an issue that he
has not raised during the CDP hearing. A-F5 is revised to clarify that in
order to obtain judicial review, a taxpayer must not only bring the issue
to the attention of Appeals but must also submit, if requested, evidence with
respect to that issue. Under revised A-F5, if the taxpayer does not provide
Appeals any evidence with respect to the issue after being given a reasonable
opportunity to submit such evidence, then he may not ask a court to consider
the issue.

There has been some confusion about what documents Appeals should retain,
and what notations the Appeals officer or employee conducting the hearing
should make, in order to provide a judicially reviewable administrative record.
A new Q&A-F6 has been added to specify the contents of the administrative
record required for court review.

The IRS receives a number of tardy requests for CDP hearings. The changes
to §301.6330-1(i)(2) explain how these requests will be treated. The
proposed amendments to the regulations add a new Q&A-I1 to §301.6330-1(i)(2)
to explain that a taxpayer must request an equivalent hearing in writing.
A taxpayer may obtain an equivalent hearing if the 30-day period described
in section 6330(a)(3) for requesting a CDP hearing has expired. Unlike an
Appeals determination in a CDP hearing, the Appeals decision in an equivalent
hearing is not reviewable in court. Under new Q&A-I1, the IRS is not
required to treat a late-filed CDP request as a request for an equivalent
hearing. Section 301.6330-1(c)(2), A-C7 has been amended to require that
the taxpayer be notified of the right to an equivalent hearing in all cases
in which a tardy request for a CDP hearing is received. It is expected that
the IRS will either send the taxpayer a letter or orally inform the taxpayer
that the CDP hearing request is untimely and ask if the taxpayer wishes to
have an equivalent hearing. If the taxpayer elects to have an equivalent
hearing, the IRS will treat the CDP hearing request as a request for an equivalent
hearing without requiring the taxpayer to make an additional written request.

Current Q&A-I1 through I5 are renumbered Q&A-I2 through I6.
The proposed regulations add Q&A-I7 to §301.6330-1(i)(2) to clarify
that the period during which a taxpayer may obtain an equivalent hearing is
not indefinite. The equivalent hearing procedure is not provided by statute
but, consistent with the legislative history of RRA 1998, was adopted in order
to accommodate taxpayers who failed timely to exercise their right to a CDP
hearing. The equivalent hearing was meant to occur near the time a CDP hearing
held pursuant to a timely request would have occurred, because it was meant
to address the same matters that would have been addressed at a CDP hearing.
The procedure was not meant to provide a hearing right that could be exercised
months or years after the circumstances that precipitated the proposed levy
have passed. A hearing before Appeals at a later time may be obtained under
the Collection Appeals Program. Therefore, proposed Q&A-I7 limits to one
year the period during which a taxpayer may request an equivalent hearing.
The period commences the day after the date of the CDP Notice issued under
section 6330.

Because the time for requesting an equivalent hearing will be limited,
the proposed regulations add new Q&A-I8, Q&A-I9, Q&A-I10 and Q&A-I11
to §301.6330-1(i)(2) to provide the same rules governing mailing, delivery
and determination of timeliness that apply to requests for CDP hearings.
Unlike existing §301.6330-1(c)(2), A-C6, new A-I10 does not identify
the officials to whom to send an equivalent hearing request if the CDP Notice
does not specify where to send the request. Because the identity and the
address of the person to whom the request should be sent may change in the
future, taxpayers will be able to obtain more current information by calling
the 1-800 number listed in A-I10. Section 301.6330-1(c)(2), A-C6 also has
been revised in the proposed regulations to provide that taxpayers should
call the 1-800 number to obtain the address to which the CDP hearing request
should be sent.

The proposed regulations are effective the date 30 days after final
regulations are published in the Federal Register with
respect to requests for CDP hearings or equivalent hearings made on or after
the date 30 days after final regulations are published in the Federal
Register.

Special Analyses

It has been determined that this notice of proposed rulemaking is not
a significant regulatory action as defined in Executive Order 12866. Therefore,
a regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because the regulations do not impose
a collection of information on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any electronic and written comments that are
submitted timely to the IRS. The IRS and Treasury Department specifically
request comments on the clarity of the proposed regulations and how they may
be made easier to understand. All comments will be available for public inspection
and copying.

A public hearing has been scheduled for January 19, 2006, at 10 a.m.
in the IRS Auditorium, Internal Revenue Building (7th Floor), 1111 Constitution
Avenue, NW, Washington, DC. All visitors must present photo identification
to enter the building. Because of access restrictions, visitors will not be
admitted beyond the immediate entrance area more than 30 minutes before the
hearing starts. For information about having a visitor’s name placed
on the building access list to attend the hearing, see the FOR FURTHER INFORMATION
CONTACT caption.

An outline of the topics to be discussed and the time to be devoted
to each topic must be submitted by any person who wishes to present oral comments
at the hearing. Outlines must be received by December 29, 2005.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. A period of
10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of the speakers will be prepared after
the deadline for receiving requests to speak has passed. Copies of the agenda
will be available free of charge at the hearing.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read,
in part, as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6330-1 is proposed to be amended as follows:

1. Paragraph (c)(2) A-C1, Q&A-C6 and A-C7 are revised.

2. Paragraph (d)(2) A-D4 and A-D7 are revised.

3. Paragraph (d)(2) Q&A-D8 is added.

4. Paragraph (d)(3) is added.

5. Paragraph (e)(1) is revised

6. Paragraph (e)(3) A-E2, A-E6 and A-E7 are revised.

7. Paragraph (f)(2) A-F5 is revised.

8. Paragraph (f)(2) Q&A-F6 is added.

9. Paragraph (i)(2) Q&A-I1 through Q&A-I5 are renumbered Q&A-I2
through Q&A-I6, a new paragraph (i)(2) Q&A-I1 and new paragraphs Q&A-I7
through Q&A-I11 are added.

10. Paragraph (j) is revised.

§301.6330-1 Notice and opportunity for hearing prior
to levy.

* * * * *

(c) * * *

(2) * * *

A-C1. (i) The taxpayer must make a request in writing for a CDP hearing.
The request for a CDP hearing shall include the information specified in
A-C1(ii) of this paragraph (c)(2). See A-D7 and A-D8 of paragraph (d)(2).

(ii) The written request for a CDP hearing must be dated and must include
the following information:

(D) A statement that the taxpayer requests a hearing with Appeals concerning
the proposed levy.

(E) The reason or reasons why the taxpayer disagrees with the proposed
levy.

(F) The signature of the taxpayer or the taxpayer’s authorized
representative.

(iii) The taxpayer must perfect any timely written request for a CDP
hearing that does not provide the required information set forth in A-C1(ii)
of this paragraph within a reasonable period of time after a request from
the IRS.

(iv) Taxpayers are encouraged to use a Form 12153, “Request
for a Collection Due Process Hearing,” in requesting a CDP
hearing so that the request can be readily identified and forwarded to Appeals.
Taxpayers may obtain a copy of Form 12153 by contacting the IRS office that
issued the CDP Notice, by downloading a copy from the IRS Internet site, www.irs.gov/pub/irs-pdf/f12153.pdf,
or by calling, toll-free, 1-800-829-3676.

(v) The taxpayer must affirm any timely written request for a CDP hearing
which is signed or alleged to have been signed on the taxpayer’s behalf
by the taxpayer’s spouse or other unauthorized representative by filing,
within a reasonable time after a request from the IRS, a signed, written affirmation
that the request was originally submitted on the taxpayer’s behalf.
If the affirmation is not filed within a reasonable period of time after
a request, the CDP hearing request will be denied with respect to the non-signing
taxpayer.

* * * * *

Q-C6. Where must the written request for a CDP hearing be sent?

A-C6. The written request for a CDP hearing must be sent, or hand delivered
(if permitted), to the IRS office and address as directed on the CDP Notice.
If the address of that office does not appear on the CDP Notice, the taxpayer
should obtain the address of the office to which the written request should
be sent or hand delivered by calling, toll-free, 1-800-829-1040 and providing
the taxpayer’s identification number (SSN or TIN).

* * * * *

A-C7. If the taxpayer does not request a CDP hearing in writing within
the 30-day period that commences on the day after the date of the CDP Notice,
the taxpayer foregoes the right to a CDP hearing under section 6330 with respect
to the unpaid tax and tax periods shown on the CDP Notice. If the request
for CDP hearing is received after the 30-day period, the taxpayer will be
notified of the untimely request and of the right to an equivalent hearing.
See paragraph (i) of this section.

* * * * *

(d) * * *

(2) * * *

A-D4. Prior involvement by an Appeals officer or employee includes
participation or involvement in an Appeals hearing (other than a CDP hearing
held under either section 6320 or section 6330) that the taxpayer may have
had with respect to the tax and tax period shown on the CDP Notice. Prior
involvement exists only when the taxpayer, the tax liability and the tax period
at issue in the CDP hearing also were at issue in the prior non-CDP hearing
or proceeding, and the Appeals officer or employee actually participated in
the prior hearing or proceeding.

* * * * *

A-D7. Except as provided in A-D8 of this paragraph (d)(2), a taxpayer
who presents in the CDP hearing request relevant, non-frivolous reasons for
disagreement with the proposed levy will ordinarily be offered an opportunity
for a face-to-face conference at the Appeals office closest to the taxpayer’s
residence. A business taxpayer will ordinarily be offered an opportunity for
a face-to-face conference at the Appeals office closest to the taxpayer’s
principal place of business. If that is not satisfactory to the taxpayer,
the taxpayer will be given an opportunity for a hearing by telephone or by
correspondence. In all cases, the Appeals officer or employee will review
the case file, which includes the taxpayer’s request for a CDP hearing,
any other written communications from the taxpayer or the taxpayer’s
authorized representative, and any notes made by Appeals officers or employees
of any oral communications with the taxpayer or the taxpayer’s authorized
representative. If no face-to-face or telephonic conference is held, review
of those documents will constitute the CDP hearing for purposes of section
6330(b).

Q-D8. In what circumstances will a face-to-face CDP conference not
be granted?

A-D8. A taxpayer is not entitled to a face-to-face CDP conference at
a location other than as provided in A-D7 of this paragraph (d)(2) and this
A-D8. If all Appeals officers or employees at the location provided for in
A-D7 of this paragraph have had prior involvement with the taxpayer as provided
in A-D4 of this paragraph, the taxpayer will not be offered a face-to-face
meeting at that location, unless the taxpayer elects to waive the requirement
of section 6330(b)(3). The taxpayer will be offered a face-to-face conference
at another Appeals office if Appeals in the exercise of its discretion would
have offered the taxpayer a face-to-face conference at the location provided
in A-D7. A face-to-face CDP conference concerning a taxpayer’s underlying
liability will not be granted if the request for a hearing or other taxpayer
communication indicates that the taxpayer wishes only to raise irrelevant
or frivolous issues concerning that liability. A face-to-face CDP conference
concerning a collection alternative, such as an installment agreement or an
offer to compromise liability, will not be granted unless the alternative
would be available to other taxpayers in similar circumstances. For example,
because the IRS does not consider offers to compromise from taxpayers who
have not filed required returns or have not made certain required deposits
of tax, as set forth in Form 656, “Offer in Compromise,”
no face-to-face conference will be offered to a taxpayer who wishes to make
an offer to compromise but has not fulfilled those obligations. A face-to-face
conference need not be granted if the taxpayer does not provide the required
information set forth in A-C1(ii)(E) of paragraph (c)(2). See also A-C1(iii)
of paragraph C-2.

(3) Examples. The following examples illustrate
the principles of this paragraph (d):

Example 1. Individual A timely requests a CDP
hearing concerning a proposed levy for the 1998 income tax liability assessed
against individual A. Appeals employee B previously conducted a CDP hearing
regarding a NFTL filed with respect to A’s 1998 income tax liability.
Because employee B’s only prior involvement with individual A’s
1998 income tax liability was in connection with a section 6320 CDP hearing,
employee B may conduct the CDP hearing under section 6330 involving the proposed
levy for the 1998 income tax liability.

Example 2. Individual C timely requests a CDP
hearing concerning a proposed levy for the 1998 income tax liability assessed
against individual C. Appeals employee D previously conducted a Collection
Appeals Program (CAP) hearing regarding a NFTL filed with respect to C’s
1998 income tax liability. Because employee D’s prior involvement with
individual C’s 1998 income tax liability was in connection with a non-CDP
hearing, employee D may not conduct the CDP hearing under section 6330 unless
individual C waives the requirement that the hearing will be conducted by
an Appeals officer or employee who has had no prior involvement with respect
to C’s 1998 income tax liability.

Example 3. Same facts as in Example
2, except that the prior CAP hearing only involved individual C’s
1997 income tax liability and employment tax liabilities for 1998 reported
on Form 941. Employee D would not be considered to have prior involvement
because the prior CAP hearing in which she participated did not involve individual
C’s 1998 income tax liability.

Example 4. Appeals employee F is assigned to a
CDP hearing concerning a proposed levy for a trust fund recovery penalty (TFRP)
assessed pursuant to section 6672 against individual E. Appeals employee
F participated in a prior CAP hearing involving individual E’s 1999
income tax liability, and participated in a CAP hearing involving the employment
taxes of business entity X, which incurred the employment tax liability to
which the TFRP assessed against individual E relates. Appeals employee F
would not be considered to have prior involvement because the prior CAP hearings
in which he participated did not directly involve the TFRP assessed against
individual E.

Example 5. Appeals employee G is assigned to a
CDP hearing concerning a proposed levy for a TFRP assessed pursuant to section
6672 against individual H. In preparing for the CDP hearing, Appeals employee
G reviews the Appeals case file concerning the prior CAP hearing involving
the TFRP assessed pursuant to section 6672 against individual H. Appeals
employee G is not deemed to have participated in the previous CAP hearing
involving the TFRP assessed against individual H by such review.

(e) Matters considered at CDP hearing—(1) In
general. Appeals has the authority to determine the validity,
sufficiency, and timeliness of any CDP Notice given by the IRS and of any
request for a CDP hearing that is made by a taxpayer. Prior to issuance of
a determination, Appeals is required to obtain verification from the IRS office
collecting the tax that the requirements of any applicable law or administrative
procedure have been met. The taxpayer may raise any relevant issue relating
to the unpaid tax at the hearing, including appropriate spousal defenses,
challenges to the appropriateness of the proposed levy, and offers of collection
alternatives. The taxpayer also may raise challenges to the existence or
amount of the underlying liability for any tax period specified on the CDP
Notice if the taxpayer did not receive a statutory notice of deficiency for
that tax liability or did not otherwise have an opportunity to dispute the
tax liability. Finally, the taxpayer may not raise an issue that was raised
and considered at a previous CDP hearing under section 6320 or in any other
previous administrative or judicial proceeding if the taxpayer participated
meaningfully in such hearing or proceeding. Taxpayers will be expected to
provide all relevant information requested by Appeals, including financial
statements, for its consideration of the facts and issues involved in the
hearing.

* * * * *

(3) * * *

A-E2. A taxpayer is entitled to challenge the existence or amount of
the underlying liability for any tax period specified on the CDP Notice if
the taxpayer did not receive a statutory notice of deficiency for such liability
or did not otherwise have an opportunity to dispute such liability. Receipt
of a statutory notice of deficiency for this purpose means receipt in time
to petition the Tax Court for a redetermination of the deficiency determined
in the notice of deficiency. An opportunity to dispute the underlying liability
includes a prior opportunity for a conference with Appeals that was offered
either before or after the assessment of the liability.

* * * * *

A-E6. Collection alternatives include, for example, a proposal to withhold
the proposed levy or future collection action in circumstances that will facilitate
the collection of the tax liability, an installment agreement, an offer to
compromise, the posting of a bond, or the substitution of other assets. A
collection alternative is not available unless the alternative would be available
to other taxpayers in similar circumstances. For example, the IRS does not
consider an offer to compromise made by a taxpayer who, at the time of the
CDP hearing, has not filed required returns or has not made certain required
deposits of tax, as set forth in Form 656, “Offer in Compromise.”
The collection alternative of an offer to compromise would not be available
to such a taxpayer in a CDP hearing.

* * * * *

A-E7. The taxpayer may raise appropriate spousal defenses, challenges
to the appropriateness of the proposed collection action, and offers of collection
alternatives. The existence or amount of the underlying liability for any
tax period specified in the CDP Notice may be challenged only if the taxpayer
did not already have an opportunity to dispute the tax liability. If the
taxpayer previously received a CDP Notice under section 6320 with respect
to the same tax and tax period and did not request a CDP hearing with respect
to that earlier CDP Notice, the taxpayer has already had an opportunity to
dispute the existence or amount of the underlying tax liability.

* * * * *

(f) * * *

(2) * * *

A-F5. In seeking Tax Court or district court review of a Notice of
Determination, the taxpayer can only ask the court to consider an issue, including
a challenge to the underlying tax liability, that was properly raised in the
taxpayer’s CDP hearing. An issue is not properly raised if the taxpayer
fails to request consideration of the issue by Appeals, or if consideration
is requested but the taxpayer fails to present to Appeals any evidence with
respect to that issue after being given a reasonable opportunity to present
such evidence.

Q-F6. What is the administrative record for purposes of court review?

A-F6. The case file, including written communications and information
from the taxpayer or the taxpayer’s authorized representative submitted
in connection with the CDP hearing, notes made by an Appeals officer or employee
of any oral communications with the taxpayer or the taxpayer’s authorized
representative and memoranda created by the Appeals officer or employee in
connection with the CDP hearing, and any other documents or materials relied
upon by the Appeals officer or employee in making the determination under
section 6330(c)(3), will constitute the record in any court review of the
Notice of Determination issued by Appeals.

(i) * * *

(2) * * *

Q-I1. What must a taxpayer do to obtain an equivalent hearing?

A-I1. (i) A request for an equivalent hearing must be made in writing.
A written request in any form that requests an equivalent hearing will be
acceptable if it includes the information required in paragraph (ii) of this
A-I1.

(ii) The request must be dated and must include the following information:

(D) A statement that the taxpayer is requesting an equivalent hearing
with Appeals concerning the levy.

(E) The reason or reasons why the taxpayer disagrees with the proposed
levy.

(F) The signature of the taxpayer or the taxpayer’s authorized
representative.

(iii) The taxpayer must perfect any timely written request for an equivalent
hearing that does not provide the required information set forth in paragraph
(ii) of this A-I1 within a reasonable period of time after a request from
the IRS. If the requested information is not provided within a reasonable
period of time, the taxpayer’s equivalent hearing request will be denied.

(iv) The taxpayer must affirm any timely written request for an equivalent
hearing that is signed or alleged to have been signed on the taxpayer’s
behalf by the taxpayer’s spouse or other unauthorized representative,
and that otherwise meets the requirements set forth in paragraph (ii) of this
A-I1, by filing, within a reasonable time after a request from the IRS, a
signed written affirmation that the request was originally submitted on the
taxpayer’s behalf. If the affirmation is not filed within a reasonable
period of time, the equivalent hearing request will be denied with respect
to the non-signing taxpayer.

* * * * *

Q-I7. When must a taxpayer request an equivalent hearing with respect
to a CDP Notice issued under section 6330?

A-I7. A taxpayer must submit a written request for an equivalent hearing
within the one-year period commencing the day after the date of the CDP Notice
issued under section 6330. This period is slightly different from the period
for submitting a written request for an equivalent hearing with respect to
a CDP Notice issued under section 6320. For a CDP Notice issued under section
6320, a taxpayer must submit a written request for an equivalent hearing within
the one-year period commencing the day after the end of the five-business-day
period following the filing of the NFTL.

Q-I8. How will the timeliness of a taxpayer’s written request
for an equivalent hearing be determined?

A-I8. The rules and regulations under section 7502 and section 7503
will apply to determine the timeliness of the taxpayer’s request for
an equivalent hearing, if properly transmitted and addressed as provided in
A-I10 of this paragraph (i)(2).

Q-I9. Is the one-year period within which a taxpayer must make a request
for an equivalent hearing extended because the taxpayer resides outside the
United States?

A-I9. No. All taxpayers who want an equivalent hearing must request
the hearing within the one-year period commencing the day after the date of
the CDP Notice issued under section 6330.

Q-I10. Where must the written request for an equivalent hearing be
sent?

A-I10. The written request for an equivalent hearing must be sent,
or hand delivered (if permitted), to the IRS office and address as directed
on the CDP Notice. If the address of the issuing office does not appear on
the CDP Notice, the taxpayer should obtain the address of the office to which
the written request should be sent or hand delivered by calling, toll-free,
1-800-829-1040 and providing the taxpayer’s identification number (SSN
or EIN).

Q-I11. What will happen if the taxpayer does not request an equivalent
hearing in writing within the one-year period commencing the day after the
date of the CDP Notice issued under section 6330?

A-I11. If the taxpayer does not request an equivalent hearing with
Appeals within the one-year period commencing the day after the date of the
CDP Notice issued under section 6330, the taxpayer foregoes the right to an
equivalent hearing with respect to the unpaid tax and tax periods shown on
the CDP Notice. The taxpayer, however, may seek reconsideration by the IRS
office collecting the tax, assistance from the National Taxpayer Advocate,
or an administrative hearing before Appeals under its Collection Appeals Program
or any successor program.

* * * * *

(j) Effective date. This section is applicable
the date 30 days after final regulations are published in the Federal
Register with respect to requests made for CDP hearings or equivalent
hearings on or after the date 30 days after final regulations are published
in the Federal Register.

Mark E. Matthews, Deputy
Commissioner for Services and Enforcement.

Note

(Filed by the Office of the Federal Register on September 15, 2005,
8:45 a.m., and published in the issue of the Federal Register for September
16, 2005, 70 F.R. 54687)

Drafting Information

The principal author of these regulations is Laurence K. Williams, Office
of Associate Chief Counsel, Procedure and Administration (Collection, Bankruptcy
and Summonses Division).